Buying rural property, whether it's land, a farm or a house in the country, is a major undertaking. You have several choices when making a decision about the type of interest rate you want. We want to make sure you understand your interest rate options, so we explain the difference in interest rates below.
Fixed Rate Loans
Mortgage loans where the interest rate is fixed for the life of the loan. Fixed rate loans are offered for terms of 5 - 30 years.
If you want to lock in a rate and the payment amount for the life of your loan, then choose a fixed rate loan. Consider this loan term in rising interest rate markets when there is concern about volatility of rates and the affects on your cash flow. Any loan with FCS Financial may be converted to a fixed-rate loan. And, if rates move down in the future, you can convert to the new lower rate at a future date. Many lenders are unwilling to commit to long-term rates or loans on ag real estate. FCS Financial helps you reduce your risk by offering fixed rate loans up to 30 years. You never need to worry about your payment increasing during the life of the loan.
Watch this video to learn more about fixed rates.
Variable Rate Mortgage Loans (30-Day Adjustables)
The interest rate on these loans may change monthly. The rate is based on the rolling average interest rates of 3- and 6- month Farm Credit Bonds. The interest rate on variable rate loans may have high volatility. Rate changes may occur at the first of every month and customers are notified of the rate change 10 days in advance of the effective date of a rate increase and not later than the effective date of a rate increase.
If you expect the interest rates to be in a downward trend and then plan to fix the rate at a future date, the variable rate may be a good fit. You are not locked into a rate; this could minimize your loan expense if rates are declining. Typically suited to risk takers who have the financial strength to handle wide variations in interest rate. This product is often priced lower than other products.
Adjustable Rate Loans
Loans where the interest rate is established for a specific period. At the repricing date, the rate is reset based on current rates for the selected period. This process continues until maturity.
If you want to lock in a rate for a selected period of time but do not want to pay the higher rate required on a full fixed-rate loan, you should consider adjustable rate loans. You must be willing to take some interest rate risk and have the available cash flow to withstand the affects it can have on the payment amounts. This product is often priced lower than fixed-rate products initially but the rate may adjust higher at a later date. If an adjustable rate is used in a rising rate environment, the beginning rate may appear good. But when the adjustment period is over, the rates available at that time may be substantially higher. A number of adjustable rates don’t include caps, so the rate may have considerable volatility.
